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Video China's "Heavenly Palace" space craft blasts off Qualcomm's president talks wi-fi Amazon fires up the tablet market Follow Reuters Facebook Twitter RSS YouTube Read Boeing workers busted in drug sweep at plant 29 Sep 2011 Amazon's $199 Fire sparks supply, margin questions 29 Sep 2011 Bank of America to charge debit card use fee 29 Sep 2011 Holly Madison insures breasts for $1 million 29 Sep 2011 Wasabi alarm, beetle sex win Ig Nobel spoof prizes 29 Sep 2011 Discussed 63 Herman Cain wins Florida Republican straw poll 62 Business group appeals health law to Supreme Court 53 Americans get too much healthcare, their docs say Watched Rihanna's "inappropriate" outfit halts music video Tue, Sep 27 2011 Italy's Mount Etna erupts Thu, Sep 29 2011 China's "Heavenly Palace" space craft blasts off Thu, Sep 29 2011 Amazon's $199 Fire sparks supply, margin questions Tweet Share this Email Print Related News RIM says remains committed to PlayBook tablet Thu, Sep 29 2011 Australia ruling in Apple vs Samsung case expected next week Thu, Sep 29 2011 Kindle Fire may force Android tablet makers to cut prices Thu, Sep 29 2011 Amazon ignites tablet war with Fire, takes on Apple Thu, Sep 29 2011 Amazon pushes Barnes & Noble's back to the wall Wed, Sep 28 2011 Analysis & Opinion Meredith Whitney’s anniversary Tech wrap: Amazon fights iPad with Fire Related Topics Technology » Hot Stocks » Asian Markets » iPad » Amazon CEO Jeff Bezos holds up the new Kindle Fire at a news conference during the launch of Amazon's new tablets in New York, September 28, 2011. Credit: Reuters/Shannon Stapleton By Alistair Barr Thu Sep 29, 2011 9:06pm EDT (Reuters) - The rock-bottom price of the new Kindle Fire tablet computer is raising questions about Amazon.com Inc's ability to keep up with demand and the device's effect on the company's already razor-thin profit margins. Amazon's billionaire Chief Executive Jeff Bezos unveiled the Fire on Wednesday at a lower-than-expected price of $199. Bezos said Amazon is making "millions" of the tablets, without being more specific. However, he urged customers to pre-order the device early. "When Bezos quipped that people should get their pre-orders in quick, that wasn't just a sales pitch," said Brian Blair, an analyst at Wedge Partners. "That was him warning this will sell out." When the first Kindle came out in 2007, Amazon hadn't made enough and the e-reader sold out in less than a week. That meant the company missed out on sales and got the device into fewer customers' hands, limiting quick adoption. "I hope they learned their lesson from the last time," said Vinita Jakhanwal, an analyst at IHS iSuppli, which tracks electronic component supply chains. Amazon spokeswomen didn't respond to a request for comment on Thursday. Amazon has lined up about four to five million screens for the Fire in the fourth quarter, which is a "fairly significant" amount, Jakhanwal added. However, the technology that is being used for the Fire's screen has been around for at least a year and already has been produced in high volume, reducing the chances of supply shortages, Jakhanwal said. One of the components that was in shorter supply in the first half of 2011 was the 10-inch screen, mostly because of the iPad, according to Bradley Gastwirth of technology research firm ABR Investment Strategy. "This is probably one of the main reasons why Amazon started off at the 7-inch form factor," he said. Still, other specialized components may be in short supply and that could limit how many Kindle Fire's can be made quickly, Jakhanwal said. Other components aren't known yet, according to Wedge's Blair. But he expects a re-run of 2007, with the Fire selling out quickly. Colin Sebastian, an analyst at RW Baird, kept his Amazon tablet sales forecasts the same on Wednesday on concern about potential supply issues. He expects two million to three million units to be sold this year and four to six million next year. Amazon has better data on consumer demand and supply chains than it did in 2007, said Scott Devitt, an analyst at Morgan Stanley. "But the $199 price point could drive heavy demand, so supply issues are possible and something to consider," he added. Part of Apple Inc's success with the iPad and other products was driven by the company's tight control of its supply chain, which ensured it got enough parts before rivals. "Apple's supply chain, production and distribution capabilities provide a competitive advantage over Amazon, which may find it difficult to produce more than a few million Kindle Fires for the holiday season," said Gene Munster, an analyst at PiperJaffray. MARGINS The Fire's $199 price has Munster and others concerned about profit margins at Amazon too. Amazon always competes aggressively on price, often sucking up losses when it enters new markets. The company is currently branching out in several new areas and its profit margins have suffered. Apple enjoys gross profit margins over 30 percent on the iPad. That's partly because the company offers digital content cheaply to promote purchases of such devices. In contrast, Munster estimated that Amazon will probably lose about $50 on each Kindle Fire it sells. Anthony DiClemente, an analyst at Barclays Capital, expects Amazon's pro-forma operating profit margin to be 3.2 percent in the fourth quarter, down 160 basis points from a year earlier. Still, Amazon hopes to make up any losses on the Kindle Fire through extra purchases of the company's other products and services made by users of the device. Morgan Stanley's Devitt cites the example of ebooks. The Kindle Fire may increase purchases of digital books, hastening the demise of physical bookstores, he explained. That would "lead to an industry with fewer merchants and thus higher long-term margins," Devitt said. (Reporting by Alistair Barr; editing by Carol Bishopric) Technology Hot Stocks Asian Markets iPad Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (2) RealSteve wrote: “Apple’s supply chain, production and distribution capabilities provide a competitive advantage over Amazon, which may find it difficult to produce more than a few million Kindle Fires for the holiday season,” said Gene Munster, an analyst at PiperJaffray. Yeah, Amazon hasn’t proven its ability to distribute products, unless you count their dozens of warehouses, special equipment, and billions of shipments they’ve already made over the last decade… give me a break. As for production, Apple and Amazon outsource that all to Asia anyway. Hey can I get a job as an analyst too? Sep 29, 2011 10:02pm EDT -- Report as abuse rpmcestmoi wrote: This is a nice novelty item in the e-reader sector. Much ado about a little more than a little. It should have been called “Sales-Pad” because its intention is to feed folks to the Evil Empire’s store with piece of hardware they lose money on. Amazon is a bad neighbor that has fought the neighborly requirement to play fair and collect sales taxes like the good neighbors do. Sales taxes that feed people, give kids schools and health care and all else that states and municipalities provide. They are bad! Bezos is a monster. Don’t forget it. Buy elsewhere. Sep 29, 2011 11:03pm EDT -- Report as abuse See All Comments » Add Your Comment Social Stream (What's this?) 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